The Value of Money

What is the real value of money? What is money actually worth? In these crazy economic times, I start to wonder. I made money, and accounting for money, my career for a little over 30 years. I know for certain that money doesn't have the value it once had, especially when I first started, way back in the mists of time, as a bookkeeper. It also makes me wonder if all that time was wasted, keeping such careful track of something that isn't really real, after all.

I looked into this question, and researched it quite a bit, and found a confusing wealth of data. In the end it seems money has no actual value any more: only comparative worth.

FOREX stands for foreign exchange, meaning the exchange of currencies worldwide. Most currencies have value only in relation to each other, in other words, the value of an American dollar, for example, is only worth however many yen or Euros or Great British pounds someone will pay for it.

FOREX is the largest market in the world, the most traded. It trades, daily, the equivalent of 3.2 trillion United States dollars. It opens at 7:30 am Monday morning in Australia, and closes at 5:30 pm on Friday in New York, making trading available for 24 hours per day, across the world, five days per week.

Currencies are traded in pairs. The first currency listed is the base currency. It's value is 1. The second currency listed is the counter-currency. It's value is how much of it is required to buy one of the first currency.

As you can see from the table below, it takes about $1.43 US to buy a euro. It takes about 84 Japanese yen to buy a US dollar. (These quotes are current as of the time I'm writing this. The exchange rates change daily, or hourly even, so this information may not be exactly correct at the time I publish this. It is for an example, only.)

Base

Counter-currency

Exchange Rate

USD (United States Dollar)

JPY (Japanese Yen)

84.062

GBP(Great British Pound)

USD (United States Dollar)

1.611

USD (United States Dollar)

CD (Canadian Dollar)

.96

EUR (euro)

USD (United States Dollar)

1.423

Let's talk about the historical value of money, now.

Historically, money had a substantial basis: precious metal. The United States dollar was originally backed by gold. The British pound was actually, literally, a pound of sterling silver.

Well, no more. There isn't enough precious metal in the world to cover the outstanding currencies. And, once credit was invented, along with national debt, there certainly isn't enough precious metal to cover the world's debt, either.

That's when the value of money became relative. There are various and sundry ways to try to quantify the value of the American dollar today. I don't want to bore you with all the details I discovered in my research, since many of the valuators seem to produce conflicting numbers and those numbers are only significant by relative comparisons, anyway.

I do want to share with you a couple of basic concepts and a few striking facts.

Let's take, for example, the American President Obama's salary. It is now (recently doubled) $400,000 per annum. President Obama also has a $50,000 expense account.

How does that compare with George Washington's salary of $25,000 per year, starting in 1789?

Using the CPI (Consumer Price Index), the relative value of George Washington's salary in today's terms of what consumer products it would buy, President Washington earned the equivalent of a little over $585,000, which makes President Obama's salary seem more reasonable.

If I bought an item for $20 (US) in 1913, it would cost me about $447 (US) today. The rate of inflation across that period of time in the United States is 2135.4% Holy cow!

Let's take a year that's closer in time, that some of us can even remember:

1967.

If we take 1967 as our base year, and say a dollar was worth a dollar in 1967, today's dollar is worth about 15 cents. Yikes! Do I notice a trend here? Does money itself seem to be rapidly losing its value?

I'd say the answer is yes, but then I wouldn't want to try to live without any money at all. It isn't completely worthless yet.

Comments

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sending

Juliette Kando FI Chor

7 years agofrom Andalusia

Money is fresh air, fictitious figures in computers. Soon there won't be any cash any-more, only credit cards.

AUTHOR

Paradise7

7 years agofrom Upstate New York

Thank you for the comment. I'm glad you enjoyed it.

susannah42

7 years agofrom Florida

Very interesting hub. Makes you think.

AUTHOR

Paradise7

7 years agofrom Upstate New York

Thanks for the comment, Sweetie Pie, and GOOD FOR YOU!

SweetiePie

7 years agofrom Southern California, USA

I make money to pay for my rent and food, but beyond that I do not want to stress about it too much. In the past I thought it would be nice to be a millionaire, but now a days I really feel fortunate to live the life I do. There are people with lots of money, but it does not guarantee it will make you happy. It seems when some make there first millions the race continues to make more and more. That is just not one treadmill I want to get on.

AUTHOR

Paradise7

7 years agofrom Upstate New York

Thank you, manthy, for your comment. I seriously wonder what would happen if the dollar actually did collapse completely? The weird thing about it is, if the dollar collapsed, so would the yen, the euro...money is all connected now, that was part of the point of this hub.

That presidential election thing always seems like one great big power trip to me. I wouldn't want the job for a million a year, myself. Especially not in these times.

Mark

7 years agofrom Alabama,USA

Interesting - why would anyone spend 500 million dollars to get a job that pays $400k a year...........LOL

I think the dollar is in decline - I hope it doesn't collapse

as many people are predicting.

Gr8 hub

AUTHOR

Paradise7

7 years agofrom Upstate New York

You are very welcome, gitrdun.

gitrdun4444

7 years agofrom North Carolina

Very interesting hub. Not surprised. As I lived in Okinawa, Japan years ago things are very different there.

Love the chart too. Thanks Paradise

AUTHOR

Paradise7

7 years agofrom Upstate New York

Thank you, icehubber and shazwellyn, for those interesting and intelligent comments. Money is worth what we believe it's worth--that''s right!

We are about to enter a new time where the people will realise how they have been conned and what rights the actually dont have!

icehubber

7 years agofrom Iceland

Good hub, its always interesting to discuss the monetary system

However money as such has little to no value, only peoples faith in it give value.

AUTHOR

Paradise7

7 years agofrom Upstate New York

Thank you both, scarytaff and mck, for your kind and generous comments. "Money spigots running full tap"--I like that, I wish I thought of it, I would've put in here!

Scarytaff, thank you so much for welcoming me back. I've not written many hubs since last year. I'm so glad you remember.

Now, I've got to fix up that table a little! I should have proofread it better before publishing.

mckbirdbks

7 years agofrom Emerald Wells, Just off the crossroads,Texas

I refer to this as compound inflation. There is no relief in sight as the money spiggots are running full tap. Great Hub. The 'savers' need to rethink their store of value.

Derek James

7 years agofrom South Wales

Very true, No.7 Money has lost its value by people pushing up the price of commodities all the time. I notice it particularly in supermarkets now, things don't rise by a few pennies but by tens of pennies at a time. Thanks for the hub.

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